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From the early 1990s until the onset of the global financial crisis, in 2008, the economies of Central and Eastern Europe established a record of growth and economic progress that few regions have matched. Emerging from decades of socialism, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia became standout performers in the global economy. Their inherent strengths were unleashed as state-owned industries were privatized and labor reforms implemented, attracting a flood of capital and foreign direct investment that drove productivity improvements and per capita GDP growth.

Yet these economies—like the United States and Western Europe—have struggled to regain momentum since the end of the recession. Despite their underlying intact strengths, such as highly educated yet inexpensive labor forces, they need to modify their economic models to restore the 4 to 5 percent annual growth rates of the precrisis years. The region must emphasize investment-led growth, expand high-value-added exports, and increase both foreign direct investment and domestic savings. For this strategy to succeed, the nations of Central and Eastern Europe will also need to build the foundation for growth, including infrastructure improvements, accelerated urbanization, regulatory reforms, institution building, investments in labor-force skills, and efforts to encourage R&D and innovation. In addition, these economies must address the aging of the workforce by raising the labor-participation rate of women and younger workers.

We used structural MRI and EEG to examine brain structure and function in typically developing children in Romania (n = 20), children exposed to institutional rearing (n = 29), and children previously exposed to institutional rearing but then randomized to a high-quality foster care intervention (n = 25). In so doing, we provide a unique evaluation of whether placement in an improved environment mitigates the effects of institutional rearing on neural structure, using data from the only existing randomized controlled trial of foster care for institutionalized children. Children enrolled in the Bucharest Early Intervention Project underwent a T1-weighted MRI protocol. Children with histories of institutional rearing had significantly smaller cortical gray matter volume than never-institutionalized children. Cortical white matter was no different for children placed in foster care than never-institutionalized children but was significantly smaller for children not randomized to foster care. We were also able to explain previously reported reductions in EEG α-power among institutionally reared children compared with children raised in families using these MRI data. As hypothesized, the association between institutionalization and EEG α-power was partially mediated by cortical white matter volume for children not randomized to foster care. The increase in white matter among children randomized to an improved rearing environment relative to children who remained in institutional care suggests the potential for developmental “catch up” in white matter growth, even following extreme environmental deprivation.

A new report published today by the European Commission highlights the overall positive role that mobile workers from Bulgaria and Romania (EU-2) have played in receiving countries’ economies. These workers have contributed to the skills mix as well as filling vacancies in sectors and jobs with labour shortages such as in construction and the domestic and food services sectors. Estimates also show a positive impact of the free movement of Romanian and Bulgarian workers on the EU’s long-term GDP with an increase by about 0.3% for EU-27 (0.4% for eu-15). Studies show too that there has been no significant impact on unemployment or wages of local workers in receiving countries: in the EU-15 studies show wages are on average only 0.28% lower they would have been without mobility of the EU-2. The report also highlights that there is no evidence of a disproportionate use of benefits by intra-EU mobile EU citizens and that the impact of recent flows on national public finances is negligible or positive.

Speaking to journalists in the margins of a conference in Vienna, László Andor, EU Commissioner for Employment, Social Affairs and Inclusion underlined the positive impact of mobility saying “Moving between countries offers real opportunities and economic benefits for both the host countries and the EU as a whole. We see that geographical mobility very much depends on the trends of the economy and where the jobs are”. He also expressed his strong desire to see all labour market restrictions lifted adding: “Restricting the free movement of workers in Europe is not the answer to high unemployment. What we need to do is really to focus our efforts on creating new job opportunities”.

Post-enlargement mobility may have had some economic and social costs for the receiving countries as well as for the sending countries that lose productive capacity. However, the Commission believes that while a part of these costs might be temporarily reduced by restricting labour mobility, in the longer term, labour market imbalances need to be addressed through specific policies. Evidence shows that the transitional measures have had a limited effect on the distribution of EU mobility and that flows are influenced more by factors like labour demand or language skills. The experience of the 2004 enlargement has also shown that restricting the free movement of workers can have negative effects, such as a rise in undeclared work.

The main destination for movers form Bulgaria and Romania was to Italy and Spain and data suggest that, at the end of 2010, twice as many Bulgarians and Romanians (2.9 million) were residing in the EU-25 compared to 2006. At the same time, in relative terms, EU-2 nationals resident in an EU-25 Member State only represent 0.6 % of the total EU-25 population. The highest share is in Cyprus (4.1%), Spain (2.2 %) and Italy (1.8 %). In addition, the EU-2 employment rate (63%) is close to that of the EU-25 (65%). However, since the economic downturn, recently arrived EU-2 nationals have found it more difficult to find a job: around 16% were out of work in 2010, compared to 9% in 2007. What is clear is that recent EU-2 movers have played a very minor role in the labour market crisis which is a direct consequence of the financial and economic crisis, as well as structural labour market problems.

COUNTRY DESCRIPTION: Romania is a republic and a member of both NATO and the European Union. The country has a market-oriented economy with developed tourist facilities in the capital, Bucharest, and facilities of varying quality throughout the rest of the country. Read the Department of State’s Background Note on Romania for additional information.

The railways of South East Europe and Turkey experienced significant declines in traffic volumes in 2009. This reflected the impact of the international financial crisis unleashed in the last quarter of 2008 and its contractionary impact on the economies of the region and elsewhere. Lower traffic volumes
translated in most cases into a serious deterioration of the financial performance of the state-owned railways. This brought home the costs of failing to implement essential reforms to improve the operational and financial performance of the sector when the economy was strong. In Romania in 2010, large-scale layoffs were announced at short notice for the state rail companies. The situation is similar for the Bulgarian state rail incumbents—they face an acute liquidity crisis, and will require additional state aid merely to keep running. The lesson of these events is clear: it is unwise to delay implementing state railway sector reforms during good economic times—because the consequences can be too severe if a financial downturn occurs before those reforms have been taken and properly implemented.